Loss Aversion

Loss aversion is a powerful conservative force, which means that we will strive harder not to lose something, than we will to gain something. Research has shown that people derive more satisfaction from avoiding a loss than from achieving a gain (of equivalent value).

Consider it for yourself – say I flipped a coin, and if it comes up tails, you lose $10. How much would you have to gain if it comes up heads for this to be an acceptable gamble?

Most people answer $20. So they want the potential reward to be twice as much as the potential loss. In other words, we’re willing to leave a lot of money on the table to avoid the possibility of losing.

Free Trials

Loss aversion is one of the reasons why free trials work so well for SAAS businesses. Once we have something, we over-value its worth and resist parting with it, so are more willing to pay money to keep it.

Similarly, since we over-value losses, we are also highly motivated to avoid surcharges and price increases. Booking.com takes advantage of this with statements to ‘Lock in’ prices before they ‘may’ go up.

Everyone is familiar with Groupon, so let’s also examine how they utilize loss aversion:

So in this example, you could ignore the deal and save yourself £14.50. Great. However, if you don’t get the deal then you miss out on the £15.50 saving. People are often willing to spend money in order to avoid this perceived loss.

The sense is heightened by the ever-ticking timer, introducing scarcity to emphasize the sense of urgency.

In certain situations, the perceived loss can be even more effectively communicated by framing the wording in terms of loss. Consider an energy supplier, whose message might be: “Switch to our service and save $50 a month.”

Applying the principle of loss aversion, a worthwhile split test would be to frame this statement in terms of potential loss:

“If you don’t switch you’ll lose $50 a month.”

Self-Efficacy

Self-efficacy is the strength of belief of your own competence—how well you think you can perform a task. Self-efficacy can affect your motivation to start a task and your persistence to complete it.

For example, self-efficacy directly relates to how likely you are to stick to diet or exercise regime. If you don’t believe you are any good at exercise, you are more likely to give it up.

Similarly, low self-efficacy can cause people to believe tasks are more difficult than they actually are, and in many cases prevent them from actually starting.

Reward Success

Self-efficacy increases with success. By providing instant feedback, we can congratulate users for performing an action correctly, thus increasing the likelihood that they will continue to the next stage and complete the task.

Rewarding success after completing one task in a process reinforces belief that you can complete the process, such as a tick mark.

In a test published by Luke Wroblewski, inline validation on a web form showed a 22% increase in success rates and a 31% increase in user satisfaction.

Make Things Look Easy

People with low self-efficacy may deem a task too difficult to complete, so breaking down a process into a few easy steps can help it seem less daunting. As they go through the process, reward them after each stage to build self-efficacy as they go.

Show the Success of Others

Self-efficacy can also increase due to the actions of others. If we see other people achieving success performing a task, we believe we are also more able to complete the task.

We can use this by showing existing customers who have recently purchased:

Or the amount of other people that have already signed up:

Dual Process Theory

We can also consider ways in which our brains process information in order to make the decision in the first place.

One of the most enduring schools of thought is ‘dual process theory’; that our brains form thought by means of two different processes. One process is deliberate (conscious) and the other is automatic (unconscious).

In his book,Thinking, Fast and Slow, Daniel Kahneman describes these two systems as follows:

Whilst both systems are always ‘on,’ one system or the other will take control when we make decisions. In simple terms, we either make snap judgments, or we mull things over carefully.

Kahneman goes on to explain how the two systems work in tandem:

“Systems 1 and 2 are both active whenever we are awake. System 1 runs automatically and System 2 is normally in a comfortable low-effort mode, in which only a fraction of its capacity is engaged. When System 1 runs into difficulty, it calls on System 2 to support more detailed specific processing that may solve the problem of the moment.”

Considering this framework in a practical scenario, an experienced driver is able to comfortably manage most aspects of driving without thinking—using System 1. Quick decisions like a gear change or a course adjustment can be made automatically, even whilst chatting with a passenger or listening to music.

When they come to a complicated junction, however, System 2 kicks in, requiring more concentration and rational thinking.

Optimizing for System 1

We can use the fact that System 1 predominates to tailor our messaging, by pressing psychological buttons to satisfy this system. Effectively: ‘don’t make me think.’

Visual Cuing

Use visual cues to literally direct attention to where you want customers to look. Our attention is very easily influenced, so even imperceptible cues can have an impact.

Optimizely do this by ‘squeezing’ the eye’s attention down towards their call to action:

Evernote do the same thing, perhaps with even more impact, creating an arrow shape towards the CTA.

Wheelofpersuasion published the results from adding visual cuing to a long-form page of their hotel client Van Der Valk, and as you can see below, the simple addition of an arrow shape increased engagement on the page and caused a 57% uplift in conversions!

However, we don’t need to be subtle with our visual cues, explicit directional cues, such as arrows, have also been shown to be very effective at driving user attention.

Communicate Through Images

Since System 1 is inherently emotional, we can communicate with this emotion using images of real people (NOT stock images!) as we are hard-wired to react to the human face.

Notice, in this example, the eye is initially drawn to the woman’s face, however we then follow her gaze to the signup box—another example of visual cuing. Kissmetrics published a great post on eye-tracking studies and what we can learn from them.

Since we instinctively react to images of human faces, they can be a great way to build up trust in a personal brand.

Offer Immediate Reward

System 1 makes quick, automatic decisions, so offering immediate rewards can play into this cognitive bias. An experiment published on ContentVerve showed an increase of 31% on a payment page simply by adding a sense of immediate satisfaction to the button copy

The Psychology of Your Customers

Whilst we can look to psychological principles to help generate ideas to test, this doesn’t replace the need to test. We want to try to motivate the decision by triggering pressure points inside the mind of our customer—but not all customer profiles are created equal.

If you’re selling a pension plan, for instance, you would want to find ways to engage with System 2, the calculating, rational side, so you’d be looking for different implementations than any I’ve presented here. Either way, with a better understanding of why our customers make decisions, we have a better chance of convincing them to make our decision.

What psychological tricks do you use to influence your customers? Please share in the comments!

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Thomas Smale is owner and co-founder of FE International, a website brokerage firm helping businesses buy and sell websites. Thomas specializes in website monetization and exit strategies, helping business owners prepare for the sale of their website - and conversion optimization is one of the most powerful tools in his arsenal.

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Love this article. It has a lot of great insights, however, the examples cited apply more easily to service selling or products that are geared toward self-improvement of some kind (getting more leads, improving your financial portfolio, etc.). I’d love to see a follow-up using examples for sites that sell products. For example, we sell products for commercial and residential renovation so things like using the “Create account now and get started” CTA might not translate.